(Bloomberg) — Gold steadied on Friday, after a week that has seen prices fluctuate wildly with little official economic data to guide the market due to the US government shutdown. Silver rose.
Bullion was trading around $4,160 an ounce, paring earlier gains but still on track for its first weekly advance in a month. Silver’s five-day increase was about 9%, inching closer to a record hit last month.
Most Read from Bloomberg
Gold’s rise this week may have been amplified by a so-called “gamma squeeze,” a technical pattern whereby dealers who sold cheap options are forced to buy bullion futures as a hedge. In a thin market, any sudden rise in price can increase the urgency to buy and snowball into a surge even without fresh demand from physical buyers.
Gold’s recovery this week fits this dynamic, Daniel Ghali, a strategist from TD Securities, said in a note on Thursday, with a recent drop in over-the-counter trading volumes making the market easier to push around. “This liquidity vacuum may actually have been key for setting up a gamma squeeze, resulting in a second shock wave higher this week,” he said.
Though it has retreated from a record above $4,380 last month, gold is still up nearly 60% this year and remains on target for its best annual performance since 1979. Central banks have stepped up purchases, seeking a store of value and asset diversification, while investors have piled into the metal as a hedge against growing fiscal unease in some of the world’s biggest economies.
Meanwhile, the market is divided on whether the resumption of data when Washington returns from its longest-ever shutdown will show enough weakness to justify another rate cut.
Expectations were scaled back as the week progressed, with Fed officials showing little conviction for reducing the cost of borrowing. Federal Reserve Bank of Minneapolis President Neel Kashkari said he remains undecided on next month’s rate decision, while his counterpart for Cleveland, Beth Hammack, argued for rates to be kept steady.
Swap traders trimmed their bets on a December interest rate cut to about 50% from more than 60% earlier this week.
Gold dipped 0.1% to $4,166.95 an ounce as of 10:42 a.m. London time. The Bloomberg Dollar Spot Index was up 0.1%. Silver rose 0.8% to $52.71 an ounce, while platinum and palladium fell.
